The impact of S&OP on company performance

How can you guarantee sufficient supply or production for what you plan to sell? This is a question that all companies have to ask themselves, whether they operate in the industrial, retail or service sectors. It is one of the key challenges of the supply chain, and it is the objective that businesses aim to achieve by implementing an S&OP (Sales & Operations Planning) process.

How to ensure good customer service? What has to be produced and when? Should we consider outsourcing? These are some of the questions that S&OP helps provide answers for.

A process based on anticipation and comparison

S&OP is a process of coordination between commercial and operational functions. It provides an analysis of the balance (or lack of it) between sales forecast and production/supplier capacities. It, therefore, involves a thorough medium-term analysis of possible solutions that could be implemented in the case of an imbalance. For example, if a company was expecting to sell 100 units in six months’ time, but its production capacity was only 50 units, which solutions might be implemented to fill the gap? Should an additional team be put in place to produce more, or should outsourcing options be considered instead?

The objective of the S&OP process is to compare options according to very specific criteria (most often the impact on costs or margins), based on facts, in order to make the best decision. A survey carried out with ASLOG (the French supply chain and logistics association) has shed light on how well established the process is and what benefits have been seen by those who have implemented it. 

A process with well-established core concepts, but needing more development

Based on nearly 160 responses to a questionnaire and 20 qualitative interviews, the survey covered a wide audience. The respondents worked in a range of sectors (FMCG, life sciences, distribution, transport, etc.) and functions (with 63% in supply chain/logistics, as well as others in S&OP, operations, marketing, purchasing, etc.). Following analysis of the data, the study revealed that:

• The basic technical concepts of the S&OP are well established;
• Using S&OP noticeably improves company performance. 72% of respondents describing themselves as satisfied with their S&OP process, only rarely experience problems with lost sales, insufficient or excess inventories, or service levels;
• However, considerable gaps in maturity remain for all sectors. These gaps are particularly noticeable in the areas of operational planning, ensuring accurate forecasting, decision-making capabilities, and available tools;
• Therefore, putting in place a dedicated IT tool is not sufficient to guarantee a flawless S&OP process. Respondents who use such a dedicated tool encounter the same issues with lost sales, inventory, and levels of customer service as those who do not. In such cases, the use of Excel spreadsheets is widespread;
• The difficulties in involving different players (from production, sales, finance, the executive committee, etc.) demonstrate the need to improve processes and organizational structures. S&OP is a cross-functional process that helps coordinate commercial and operational activity.

In conclusion, 66% of respondents want to take steps to improve the performance of their S&OP process within the next 12 months.

The Rhône-Alpes economy: an area particularly aware of this challenge

Although this percentage is derived from a national sample, it is equally representative of the level of interest in the Rhône-Alpes region. This was demonstrated during an event organized in Lyon in May 2016, where a St. Etienne-based manufacturer offered its views on the subject.

It shared its experience with the local audience on areas such as generating forecasts, integrating global subsidiaries, and the level of detail that S&OP should go into. The level of questions demonstrated a clear understanding of the process within the Rhône-Alpes region. Companies have fully embraced the trend and are now moving towards either the improvement of their existing process or the implementation of an S&OP. In order to keep up with their competitors, they are aiming to either complete or optimize the development of their coordination process between sales and operations. The savings made come both from reducing supply chain costs and increasing revenue.

This testimony, along with the results of the survey, clearly illustrates the fact that the development of the process continues to move forward. By using different levers (awareness-raising and support for stakeholders, assessments and descriptions of S&OP practices, opportunity and innovation studies, etc.), many potential improvements to S&OP practices can be pursued. It will move up on the companies’ agenda the need to work on improved process coordination between commercial and operational activities.